Staying on top of your tax obligations is crucial for every business owner. In this blog, we will discuss several important tax-related topics that you should be aware of. From spreading your PAYE payments to understanding BAD relief claims, the VAT margin scheme for car dealers, excess mileage payments, and key tax dates, we’ll provide valuable information and guidance to help you navigate through these matters effectively. Let’s dive in!
How to Spread Your PAYE Payments
Your business may well be stretched right now, with rising National Minimum Wage rates and increased input costs such as food and energy. However, using payroll deductions to pay pressing bills is not advisable. Late payment interest of 7% is charged if payroll deductions are not paid to HMRC by the 22nd of each month. Late payment penalties are also imposed based on the number of late payments in the tax year. To avoid penalties, it is crucial to pay your PAYE on time.
If you are struggling to pay your PAYE to HMRC on time, you can apply for a time to pay (TTP) agreement through your online business tax account on gov.uk. This allows you to spread your PAYE debt over six months. To qualify for automatic approval, certain conditions must be met, such as submitting all PAYE and CIS returns, having a PAYE debt of less than £15,000, having no other tax debts, applying within 35 days of the due date, and ensuring the TTP plan clears the debt within six months. If you do not meet these conditions, you should contact HMRC on the payment support service to negotiate a TTP agreement.
HMRC Warns of BAD Relief Claims
Entrepreneurs’ Relief (ER) was renamed Business Asset Disposal (BAD) relief, with a reduction in the lifetime cap from £10 million to £1 million. Gains eligible for either ER or BAD relief are subject to a capital gains tax (CGT) rate of 10% instead of the full rate of 20%. However, the lifetime cap of £1 million is cumulative, and any claims made under ER reduce the available cap for BAD relief.
If you had already made ER claims covering £1 million or more of gains by 10 March 2020, you cannot make further BAD relief claims. However, older ER claims remain valid. If you hadn’t exceeded £1 million of gains with ER claims, making a new BAD relief claim that takes the total gains covered by ER or BAD relief over £1 million will render the excess gains ineligible for BAD relief.
Confusion surrounding the rebranding and lifetime cap has led to incorrect BAD relief claims. HMRC has been sending letters to taxpayers who may have made incorrect claims. Letter 1 is sent to taxpayers who exceeded the £1 million cap before submitting their 2021/22 tax return, requesting an amendment to remove the BAD relief claim. Letter 2 is sent to taxpayers whose 2021/22 BAD relief claim surpasses the cap, asking them to reduce the claimed amount. Correcting these claims may involve paying additional CGT plus interest, and HMRC may impose penalties for inaccurate tax returns.
VAT Margin Scheme for Car Dealers
Brexit introduced a VAT border between Great Britain and Northern Ireland. As of 1 May 2023, second-hand vehicles purchased in Great Britain and sold in Northern Ireland must carry VAT on the full selling price. Previously, motor traders could use the second-hand margin scheme, where VAT was charged only on the margin of sales value added by the dealer.
To compensate car dealers, HMRC introduced the second-hand motor vehicle payment scheme. Under this scheme, registered car dealers in Northern Ireland can claim a payment equivalent to the VAT that would have been due on the full selling price of the vehicles they purchase in Great Britain. Dealers must meet eligibility criteria, including having a valid VAT registration and being primarily engaged in selling motor vehicles.
The deadline for claiming payments under the scheme is 31 July 2023 for eligible purchases made between 1 January 2023 and 31 May 2023. Further deadlines will be announced for purchases made after 31 May 2023.
Excess Mileage Payments
The current tax-free mileage rates are outdated and may not cover the actual costs incurred by employees using their vehicles for business purposes. Excess mileage payments, which are payments made to employees for mileage above the tax-free rates, are subject to income tax and National Insurance Contributions (NIC).
Employers need to accurately record and report excess mileage payments to HMRC, ensuring that they are included in employees’ payroll and taxed accordingly. It is essential to keep thorough records of the mileage payments and maintain proper documentation to support any claims made.
For electric vehicles, special considerations come into play. While charging costs for electric vehicles provided by the employer are not considered a taxable benefit, if the employer reimburses the employee for home charging costs, it may be considered part of the employee’s earnings and subject to income tax and NIC.
June 2023 Questions and Answers
Q: Are bonus payments received from financial institutions taxable? A: Yes, bonus payments received from financial institutions are subject to income tax and NIC like any other earnings.
Q: Are outstanding debts owed by employees to their companies taxable benefits? A: Yes, outstanding debts owed by employees to their companies are considered taxable benefits and are subject to income tax and NIC.
Q: Why are HMRC repayments of statutory maternity pay (SMP) refunds delayed? A: HMRC is currently experiencing delays in processing SMP refunds due to increased workload and resource limitations. They are working to resolve these delays as quickly as possible.
June 2023 Key Tax Dates
- US expatriates have until 15 June 2023 to file their 2022 US federal tax returns.
- The deadline for payment of PAYE, NIC, and Construction Industry Scheme (CIS) deductions made in June is 22 July 2023.
Staying informed about tax-related matters is essential for maintaining compliance and avoiding penalties. By understanding how to spread PAYE payments, avoiding incorrect BAD relief claims, navigating the VAT margin scheme, managing excess mileage payments, and keeping track of key tax dates, you can ensure smooth tax operations for your business. Remember to consult with professionals or contact HMRC directly for personalized advice and support tailored to your specific circumstances.